Center-State Investment Agreement [CSIA] – federalism

An Investor State Dispute Settlement (ISDS) provision requiring investors to exhaust local remedies before commencing international arbitration, and limiting the power of tribunals to awarding of monetary compensation.

The Centre will not make it mandatory for states to sign these agreements but if any don’t, Center will inform counter-parties (other nations) and that foreign companies should keep that in mind before investing

States that sign this agreement are likely to see greater FDI interest as they will be seen as friendlier investment destinations

Investment will grow as states will be required to stick to their commitments

Enhances the Cooperative Federalism by involving states

Problems:

Challenges with respect to upholding such agreement in international courts in case of disputes

Questions raised on agreements for World Trade Organizations Pacts and others pacts to be required similar treatment as well

Could affect Cooperative federalism as the State governments will not like the shifting of the blame for violation of a BIT from New Delhi to State capitals.

Also, the State governments will also not like the Centre informing India’s BIT partner country that a particular State government has not signed the agreement and thus, by implication, is not a safe destination for foreign investment.

BIT [Bilateral Investment Treaty]

Agreement entered by two countries regarding promotion and protection of investments made by investors of these two countries in each others’ territories.